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Thursday, June 28, 2012

The Supreme Court this morning published its final opinion on the matter of the Affordable Healthcare Act (ObamaCare) and the decision effectively finds the individual mandate is upheld, while the ability to withhold Medicare funds from States based on their unwillingness to accept the federal government's broadening of Medicare is unconstitutional. So this is a win-lose for Obama by the numbers, but a win-win in terms of the most important thing (individual mandate) being upheld, and that the Court did not find the entire Act unconstitutional just because part of it was ruled so.

I spent some time today reading both the majority opinion (written by Chief Justice Roberts) and the dissent (from the usual conservative Justices).

Recall the individual mandate says basically you either buy healthcare or you pay a 'penalty'. This will be enforced beginning in 2014.

The main argument with respect to the individual mandate from the majority opinion is that the Act is unconstitutional from the argument of commerce clause of the Constitution. Basically, the argument is that a lack of behavior (failure to buy health insurance) or the potentiality of eventual behavior does not constitute 'commerce' and therefore may not be relegated to the federal government.

However, they find the individual mandate is, overall constitutional because the federal government had argued that the mandate is, in essence, a kind of tax, and therefore is within the feds purview. In his argument, Chief Justice Roberts points out that the mandate, even though the President and Democrats in congress went to great length to not call it as such, is still a tax in practice as it is a revenue generating scheme that will be administered by the IRS should certain individuals choose not to buy health insurance.

The dissent argues that the majority is wrong in calling the mandate a tax, because Congress and the President clearly intended it to be a penalty, and in their view, never before has the court ruled something simultaneously both a "penalty" and a "tax."

“‘[A] tax is an enforced contribution to provide forthe support of government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.’”

But, the Act itself never makes not buying healthcare 'illegal' so it doesn't fit the dissenter's position well. From the majority:

While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to doso is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.

I would slightly modify the definition of 'penalty' (to give the dissenters the benefit of the doubt) to suggest that rather than 'punishment for an unlawful act' it is really just an attempt, in aggregate, to 'modify behavior in some manner.' But even given this, in my view, the dissent's position is weak. Per the definition there is nothing to say that a tax cannot be both a revenue generator and a device used to change behavior. From an economist's perspective, these kinds of 'taxes' abound: taxes on cigarettes, taxes on CO2 emissions, etc.... are all money that is taken from the private sector, added to the public sector as 'revenue' and with the additional goal of changing behavior (using a stick to do so). And this is an argument that the majority makes persuasively. From the majority:

None of this is to say that the payment is not intended to affect individual conduct. Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new. Some of our earliest federal taxes sought to deter the purchase of imported manufactured goods in order to foster the growth of domestic industry.

In any case, this case seems to point out the very sketchy legal line between what is a "tax" and what is a "penalty." From the dissenters:

In a few cases, this Court has held that a “tax” imposed upon private conduct was so onerous as to be in effect a penalty. But we have never held—never—that a penalty imposed for violation of the law was so trivial as to be in effect a tax.

To me, it is interesting that Obama and the Democrats could have avoided this whole problem had they been straight with the American people and called this what it is: a tax. And to most laymen, a tax is always a penalty. It's a penalty for the aggregate private populace not voluntarily contributing to the public welfare. In some economic circles, all taxes could be considered nothing but a kind of penalty (ie., their purpose is only as a penalty or something to modify behavior such as saving and spending decisions, not to raise revenue). This can be true because the government need not tax to spend so long as it, in a broad way, has it's finger on the trigger of the printing press. In this sense, the distinction between a 'penalty' and a 'tax' is somewhat nonsensical.

Wednesday, June 27, 2012

In economics textbooks, students are usually taught by assuming a particular good sold at market is identical in all respects to its competitors. Of course in the real world, that is not the case - hence why there is no such thing as perfect competition. Goods are sold in different ways, in different locations, under different brands, with different materials and qualities, etc.

Patent law, which was created to protect intellectual property seems to have morphed over the decades as our society seems to have become more corporatist than capitalist to be less about protecting true intellectual property and more about stifling competition.

Take this recent Apple lawsuit against Samsung for allegedly violating some IPad patents. Now I'll admit they look the same on the outside - they are both black and rectangular with a glass front. Last I checked black was not a patentable color, nor was the shape of a rectangle nor was the fact that the front needs to be glass to see the screen. Having seen both products, while they cursorily look similar, they have different OS's, different feels, different button locations, etc. It's not as if Samsung took the exact IPad mold and stamped "Samsung" on it instead of "Apple."

But this kind of litigation happens all the time, and happens more and more. It stifles competition, erodes product-brand diversity in the market, and keeps prices higher than they otherwise should be for consumers - all to protect the corporate interest of a company like Apple which is flush with cash and simply does not need such protection.

If we want to get back to being a society with an economic system based on competition rather than corporate power, we need to revise our archaic patent laws to defer towards competition, not protectionism.

Thursday, June 7, 2012

Bernanke spoke to congress today and said more of the same thing he's been saying for years: "we'll be ready to act...." my question is, "doing what exactly?"

Interest rates are already at record lows and there is growing skepticism that, particularly in economic environments like we are in today, that lower interest rates really do much stimulating. There certainly are winners and losers though. From a macro perspective it seems that interest rate policies are a wash.

So there's nothing the Fed can do, and there is nothing congress can do because of our broken politics. So, let's all cross our fingers that Europe stops digging the ditch of economic destruction any further....

Garth Brazelton

About Me

I work for the Indiana Economic Development Corporation as the Director of Operations and Business Systems, and I teach macroeconomics at Indiana University (Indianapolis). Previously, I was an Economist at the US DOT in Cambridge, MA. This blog does not represent the opinions of any of these organizations.